When IRR Fails: The Case of Delayed Investments

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This video discusses how and why the IRR decision rule cannot be trusted when evaluating a project involving a delayed investment. This is because the IRR is only guaranteed to work when all of a project's negative cash flows occur before the project's positive cash flows. A comprehensive example is provided to illustrate how, in the case of a delayed investment (a positive cash flow upfront followed by a stream of negative cash flows), IRR can incorrectly suggest that a project be accepted when the NPV decision rule states that the project be rejected (of course, the reverse is possible as well; IRR can incorrect suggest to reject a project when NPV says to accept). Edspira is your source for business and financial education. To view the entire video library for free, visit http://www.Edspira.com To like us on Facebook, visit https://ift.tt/2KTB60V Edspira is the creation of Michael McLaughlin, who went from teenage homelessness to a PhD. The goal of Michael's life is to increase access to education so all people can achieve their dreams. To learn more about Michael's story, visit https://ift.tt/2J87Nua To follow Michael on Facebook, visit https://ift.tt/2GPGCyZ To follow Michael on Twitter, visit https://twitter.com/Prof_McLaughlin
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